The Questions are More Important Than the Answers

Category Archives: Zimbabwe

I wrote this article on 1st January 2015!

The newly minted bond coins released on December 18th, 2014, are facing the challenge of being accepted by consumers who recently experienced hyperinflation of the Zimbabwe Dollar which was legal tender until 2009. The bond coins are pegged at 1:1 to the U.S. Dollar. It means with 100 bond coin cents; you get 1 USD equivalent. If that is the case, why are they being rejected?

First of all, consumers are still smarting from their experience with hyperinflation and this bond coin may be seen as the return of the ZWD despite assurances from the government that this was not the case. Is a hundred bond coins equivalent to 1 bond dollar? Remains to be seen how much the government is trusted in its word.

Secondly, the bond coins are only valid tender within the Zimbabwe borders which means they have to be changed into USD, South African Rand, Botswana Pula or some other forex, if one intends to import goods or go on holiday. If one designed to travel within a few days, they might reject the bond coins preferring other more trusted currencies. Effectively our forex ‘reserves’ are leaving the country where we can spend them thus benefitting the economies of those countries. Even when our shop shelves are stacked with goods, most of them are imported hence the foreign economies benefit. We have a trade deficit which means we import more than we export. As a result of this, we are losing forex inside the country.

This makes the introduction of bond coins suspect. When Gideon Gono was governor, he printed his way out of liquidity challenges and bought forex off the streets to fund import obligations. Because he was spending the forex outside the country, the only way to get more forex was to print more ZWDs.

The question is: will government slowly then quickly mint more bond coins then bond dollars and return to the previous hyperinflationary situation of early 2009? With an economy which is not performing, it’s reasonable to predict such an outcome. We need to produce goods and services to avoid losing money to competitive economies.

The government needs to craft policies that attract local and foreign investment. The current indigenisation policy is vague and political. It has failed to attract investment and must be revised urgently. There seems to be no consensus in government on the need to review the policy. ZimAsset is the government’s ambitious economic blueprint which not only lacks the upwards of USD40 billion funding but is also being implemented by a team which has failed to achieve previous fully funded plans such as ESAP. The 2014/15 budget statement by Patrick Chinamasa was unable to provide funding for the blueprint urging individual ministries to source their funding. With about 90% of the USD4.4 billion budget going to salaries, it’s small wonder the plan remains a pipe dream.

The introduction of the bond coins fails to address real economic challenges and adds to the loss of confidence in the government’s ability to revive our fortunes. It is an embarrassing policy intervention from a governor who has no currency to print his signature.

The euphoria associated with the departure of Robert Mugabe after 37 years as president of Zimbabwe must now translate into real work to make our country great again.

The hard work begins today. Zimbabwe must never be held to ransom by a few individuals in Zanu-PF again. The new leadership going forward must be guided by our constitutional democracy. Rule of law is hard work but it is the only way to avoid a dictatorship.

The multi pronged approach to ouster of Robert Mugabe included the military, the people, and parliament. The army had been captured by Robert Mugabe through a patronage system but turned against him when they felt threatened. The people are not naive to this fact but we have to be pragmatic and politically mature. We have an institutional framework which worked to force Mugabe to resign. Now we should our institutions for building the state of Zimbabwe.

We pride ourselves as one of the most educated countries in Africa but our education has not translated into economic prosperity. This is the time to put our education to good use. Think about how you can make a positive contribution at a personal level.

THE CURIOUS CASE OF NEW POLITICAL PARTIES IN ZIMBABWE
Zimbabwe is not short of creativity. You can point out the economic challenges it is facing but you can’t accuse Zimbabwe of not having enough political parties. We have more than 20 political parties. The new political formations are not happy with the ruling ZANUPF party led by president Robert Mugabe and the main opposition MDC led by Morgan Tsvangirai. ZANUPF is blamed for the current economic malaise and the MDC is accused of failing to take political power after winning elections on several occasions.

I’m curious to understand the thought process behind the formation of a new political party. There’s a lot of work that needs to be done in terms of setting up structures and building a political brand the way the ruling party and the main opposition have done over many years. I don’t understand why aspiring presidents are forming new parties instead of joining the established political formations and adding their fresh ideas in those parties because they already have an established brand. Perhaps the easiest and fastest way to become president is to become the founder of a political party?

It’s also curious to note that as soon as the new political party is formed, it tries to join hands with others in a coalition of many names. A coalition with the same parties that are not good enough to join. Perhaps if the coalition wins the general election, the presidents of each coalition partners is guaranteed a political stake in the new government. Nothing wrong if they can pull it off. Maybe the country will benefit from the many talents putting themselves forward.

Some of the new political parties have not held an elective congress to choose its own leadership let alone participate in a single by-election to gauge their political relevance. Politics is about numbers which the ruling party and main opposition clearly have based on results of previous elections. It’s also about clear ideological positions. I’m struggling to find these in the new formations.

Having said that, I congratulate the men and women who have thrown their hats into the political ring in Zimbabwe. They have done something instead of just ranting about a failed politics. If their objective is to participate in the long-term politics of the country I think they’ve done well but if they want to rule Zimbabwe come 2018 I think they may be too ambitious.

Part 1
I had become expert at sporting roadblocks from a km away. The police ahead sign a mere 100m from the cops. Their own car with private plates safely parked off-road. I was flagged down, then I slowed down, deployed hazards and came to a stop in the middle of the road. Rolled down the window and said, ‘kuricei?’. It’s safe to speak in Shona 99% of the time. But I could switch at a moment’s notice.
Licence, the cop demanded. I pulled out my UK licence and gave it to him. Pakai apa, he said. Why, I asked. It’s not kuti taku sungai we are just saying pakai paside. Then I say saka kana ndisina kusungwa why am I being asked to park? To allow other cars to pass he says. So other cars pass and others stop I persist. My wife then says, chingopaka tione. After I’m parked, the cop follows me and says extinguisher? I fidget with my iPhone to try and record the conversation and I think cop noticed. I ask if there’s a burning car that requires an extinguisher as I open the boot and show him one. He’s clearly not used to being asked so many questions. He ignores me and next wants to see my spare wheel. Who’s problem is it if I break down I ask. I’ll have to remove the two suitcases to show you the spare wheel I say. He hands me back my licence and says I can go. How’s the UK he asks. Okay I say, I’ve only been stopped once in 10 years driving there. Meanwhile the one with the receipt book approaches the car saying, havana mhosva here ava? Zvanzi ndiende I say. Then the other cop asks how much are cars in the UK. Tengai ku Japan I advise, ku beforward dot com Then I complain but munomisa mota pakati pe road, this is an 80km/h zone, it’s dangerous. They ignore and target an oncoming kombi.

This was the second of 4 road blocks in a 10km journey. On a normal day I was getting stopped at least 10 times and everytime I vowed not to pay BRIBE. I NEVER DID.

Part 2

I spotted the roadblock a km away and prepared to stop. I started slowing down and deploying hazards to warn those behind me of my intentions. The police ahead sign was just 100m from the cops. There were 3 lanes hence 3 queues. I took the middle lane with 2 cars in front of me. The left lane was equally long then I realised the only car on the right was just leaving. So logically I moved to the right pane. Licence the cop demanded. I pulled out my UK licence. Zvese manga magona (you were spot on) except one thing. What’s that I asked? Macrosser (you crossed the) solid line. Solid line? And sure enough, when I logically changed lane for a quicker service I did cross the solid line. Shit. Saka pakai henyu apo. (Please park over there). I complied by again crossing the same solid line but it was not a crime this time?

Then to my shock: crossing the solid line is USD15 spot fine. Handina (I don’t have it), I lied. Nyorai (write a) ticket. Iyi hainyorwe (this one we don’t write a) ticket he says, ispot fine chete (it’s a spot fine only). Hapana here wamungafonera kuti akubhadharirei (is there someone you can phone to come and pay for you)? No I said. Ah, saka zvinoitika ndezvekuti munoendeswa ku (so we are taking you to the) station then it’s upto the discretion of the officer to discharge you whenever they are satisfied so it’s better mukatsvaga anokubhadharirai (if you find someone to pay your) fine. Iribhoo hendeyi ku (it’s fine we can go to the) station I suggested. Chimbopakai makadaro timbodealer nevamwe (remain parked while we deal with others) he says. So there’s a queue here.

Then I notice they’re arguing with two ladies who are also saying they have no money but are willing to come to the station and pay. Why can’t you tell us your names demand the ladies. I notice none have their names displayed and one is hiding his name with a clipboard. Fishy. Is this roadblock legal I wonder? I seize my moment and say, just write our tickets otherwise you’re wasting our time!

The cop is visibly upset by my comments. Wasting time? Manje iwe ndanga ndichida kukuregerera (I was about to let you go) but haungamboti (you can’t say) police is wasting your time. I’m discharging my duties professionally according to the law. Otherwise vanotaurisa imi tozotsvaga kuti munombonzi vanani and munoita nezvei (those who talk too much may be investigated to find out who they are and what they do) he threatens. I get my phone from the car and make a call. Officer, pane varikuda ku taura nemi pa phone (someone wants to talk to you on the phone). Ndiani (who is it) he asks. I tell him without mentioning the rank of his senior. Ah, hatitauri pa phone (we don’t talk on the phone). Then my kids want to use the toilet. Munetoilet here officer (do you have toilets), vana vanoda toilet (the children need the toilet). Hatina toilet, he quips (we don’t!). The kids continue asking for the toilet. Tell the policeman you need the toilet, I tell the kids. The two ladies seize their moment and slowly drive away, the cops are surprised. Hatina kutora licence ravo, one says (we forgot to grab the license!). Then my cop says to me, chienda (you can go) as he hands me my licence back. I come back 20 minutes with ‘back up’ and the roadblock has been dismantled. It’s about 1130am.

What do you think guys? Why were the officers reluctant to identify themselves and why were they refusing to write tickets for the crime?

Part 3

It was not the first or last roadblock of the day. That was after I hit the playful baboon which decided to jump in front of the vehicle though I had slowed down enough not to kill it. As soon as I handed over my licence, I was asked to park off road. Before long the officer had noticed that the insurance disc was not displayed. Displaying it had been overlooked but it was 400 km away. Write me the ticket and I will produce the insurance at the nearest police station in Bulawayo. No. It’s a spot fine. USD20.

10 minutes later I make the payment. But officer, how do you expect to attract investors into the country when you subject motorists to such unnecessary harassment and the potholed roads are increasing maintenance costs and reducing the lifespan of vehicles? And the officer says: your opportunity is coming in 2018 (election year). No officer, some of these things don’t need a change of government, they need a change of mindset, a dialogue among Zimbabweans to improve our own lives. These things are who we are, let’s fix it now.

And the officer says, you’re the ones who made a mistake in 2013 (election). I refuse to be drawn into politics, I don’t know these guys. Well says I, let’s not go there, we leave that for another day. He understands.

Later that day I show my ticket receipt to someone. They fined you for ‘not having insurance’. You’ve got insurance. They should have charged for ‘failure to display’. There’s no way you’ll get the ‘third number plate’ without insurance. They know that. You can actually appeal. I couldn’t be bothered I said. That’s the only money they’ll ever get. I’m gonna give them hell within reason. What was hilarious was that when you leave Victoria Falls there’s a USD2 toll gate and when you enter Bulawayo there’s another USD2 toll fee. USD8 if you travel to and fro, USD40 for trucks! Some of them avoid toll gates by using farm road shot cuts. I know one that got stuck in the muddy farm roads and had to abandon its load of granite stones.

What was craziest was the many near head on collisions I witnessed as vehicles overtook 2 or even 3 vehicles even at night.

How Foreign Currency Convertible Bonds Work

Harare. Credit: Pixabay.

Those of us who have been following the Zimbabwean economy know that it is going through a lot of turmoil and instability. The official Zimbabwean currency is nothing short of a piece of currency with almost zero value. Hence, the country already phased its local currency and is replaced it with other foreign currencies. There has been some debate on the return of the ZWD and so far the reserve bank governor has denied plans to bring it back. The ZWD brings back very sad memories as pensioners lost lifetime savings to inflation. In fact, the younger generation has never saved any money because there’s never been enough for savings.

The USD continues to be the most commonly used currency in the country today and additionally the South African Rand is also being used for day to day buying and selling of products and services.

To put things in perspective, around 2008, five US dollars could be exchanged for 175 Quadrillion Zimbabwean dollars which will look something like this (5 USD = 175,000,000,000,000,000). This might look unbelievable but this was a fact. Hence, like other countries like Cuba and Panama which also are under big financial duress, Zimbabwe is also moving slowly towards bond notes or foreign currency convertible bonds. However, not many people understand what it is all about. Hence, over the next few lines, we will try to find out more about foreign currency convertible bonds and how it could be beneficial or harmful in the current Zimbabwean economic context. It’s important to consider the advantages as well as the disadvantages in order to open up a discussion on how best to make this work.

What is Foreign Currency Convertible Bonds?

Put in plain and simple words FCCB is a convertible bond which is issued in a different currency which is not the same as that of the issuer’s domestic currency. In other words for example, if Zimbabwe is raising money using this route for its economy it will be using some other currency instead of its domestic national currency. It could be referred to as a mix between equity and debt. As is the case with some bonds it gives the holder the choice to either repay the principal amount with interest or have the outstanding debt converted into stock. It is still not clear if this is the case with the Zimbabwean situation.

The reserve bank governor Dr. Magudya has insisted that the bond he will introduce in a couple of months, is a 5% export incentive for exporters. It means if one exports USD100 worth of goods, they get some USD5 worth of bond notes deposited into their account as an incentive to export more and bring more foreign currency into the country. It is not clear how the bond notes will work as people are still smarting from the hyperinflationary environment of 2008 which led to the abandonment of the ZWD. The country was using bearer cheque notes with denominations running into trillions. As we speak, you can search for the notes on eBay and buy them. They are a collector’s item.

How Does It Impact Countries Like Zimbabwe

One of the biggest challenges with countries like Zimbabwe is their highly volatile currencies. Hence, these convertible bonds could help bring about a high level of stability and predictability. It also gives the opportunity for the country to get easier access to investment capital which is there for the taking in foreign markets. It is a low-cost debt when compared to other high-cost borrowings. As a rule of the thumb, it could be cheaper than other forms of borrowing my almost 250 to 300 basis points. Further, whenever countries like Zimbabwe decide to exercise their option of converting their bond into stock, it can be done quite fast and in most cases it will be at a premium. In other words, they will be able to fetch a much higher return than the rate at which they have purchased.

There Are Some Downsides Too

While there is no doubt that going in for FCCB for a country like Zimbabwe could be the only option, there are some downsides too which have to be taken into account. First and foremost, it is also susceptible to foreign currency fluctuations and commodity prices in the international market. Further in many occasions these convertible bonds can become an expensive debt if the share prices are moving southwards. Even a small southward movement could impact fragile economies like Zimbabwe because they use the foreign currencies as the major source of exchange medium for buying of products and services. If the share prices tumble on the external equity market or if the yields become lower for the debts, then it is likely that Zimbabwe will have a tough time servicing the debt. They will have to find out other sources of borrowing or debts to repay the high-cost debt. Or they should have devised some mechanism by which internal accrual is possible. There have been many instances where countries like Cuba and Panama had almost reached the brink of defaulting on their interest and principal payments against their FCCB borrowings especially in times of big crash where the bear period could last for years at length.

Again with Zimbabwe, it is not clear whether the bond is a debt instrument or not. If it is, then Zimbabwe must pay interest for the duration of the facility and they face the same risks as any country accessing FCCBs.

Care And Caution Which Should Be Exercised

Credit: Pixabay

The end use of the foreign currency convertible bonds should also be kept in mind. This is highly critical because without this being in place, it is quite likely that it could be for meeting revenue expenditure in an indiscreet manner. If this money is again routed to the lending markets and investment markets (internationally) then it could lead to disastrous consequences. There should be ways and means by which this is kept under a tight leash. Further, it should not be used for working capital by state and government-owned enterprises but should be mostly used for creating infrastructure and for the purpose of creating national assets. There is a concept known as round-tripping by which these valuable FCCB funds are moved out from Zimbabwe to other tax havens by the state using corrupt practices and they come back to the country in some other form. However, the problem is they are not for the purpose for which it is supposed to be used. This could lead to serious cases of money laundering. I hope this is not the case with Zimbabwe as I see it. If you can explain this, please do so in the comments section.

The Final Takeaway

However, at the end of the day, there is no doubt that when the domestic currency has become a piece of waste paper, then countries like Zimbabwe have no other option but to go in for these convertible bonds in foreign currencies. They can help a lot in import and export especially in situations where manufacturing and trading in Zimbabwe have come to a grinding halt. It can help countries to procure important and highly necessary goods like food items. It also could come in handy for buying capital equipment and there are many instances where countries like Cuba and Panama have used Foreign Currency Convertible Bonds for the purpose of infrastructure development. Many foreign companies, both in the private and public sector would be willing to enter into joint ventures and set up industries and other employment generating avenues if the country has FCCBs. Hence, at the end of the day, there is hardly any doubt that it could play a role as a temporary arrangement for putting the economy back on track.

Zimbabwe introduced bond coins about 18 months ago to facilitate change and these have worked without a problem. Some say it is the convenience they have brought which is making them relevant. Before their introduction, prices were rounded off mostly upwards which made goods more expensive. Shop owners were also offering customers chewing gum to compensate for the unavailable change. It is hoped that the bond notes will also be successful but they face the challenge of trust after people’s negative experiences with the bearer’s cheques in 2008.

Victoria Falls Zimbabwe. Credit: Pixabay.

The RBZ needs a strong PR offensive to convince people the bond notes are any different from the bearer’s cheques. Some people are hopeful that bond notes will work as the RBZ cannot print more than the USD200 million worth from the African Development Bank.

One of the problems with the bond notes has been the support they are getting from ZANUPF party which has lost trust with the generality of Zimbabweans after mismanaging the economy for over 36 years. Support from them is like an endorsement of failure. Any economic initiative from ZANUPF is received with skepticism after so many economic blueprints have failed to stimulate economic growth and development.

So what do you make of the bond notes? Are they a good thing for the Zimbabwean economy? Do you think they will stop the externalization of cash in Zimbabwe and improve circulation and reduce queues at the banks? Or will the usual culprits find a way of benefitting from the facility through a parallel market where the bond is weaker than the imposed 1:1 rate? There are many questions and the more we ask the better. the questions are important because they help us to think critically and to find the best way forward. The currency of trust is worth more than any currency and Zimbabwean people want a leadership they can trust.